Question - Company has met all production requirements for the current month and has an opportunity to manufacture additional units with its excess capacity. Unit selling prices and unit costs for three product lines follow.
Variable overhead is applied on the basis of direct labor dollars, whereas fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional manufacture of all products.
|
Plain
|
Regular
|
Super
|
|
Selling price
|
$40
|
$55
|
$65
|
|
Direct material
|
12
|
16
|
22
|
|
Direct labor (at $20 per hour)
|
10
|
15
|
20
|
|
Variable overhead
|
8
|
12
|
16
|
|
Fixed overhead
|
6
|
7
|
8
|
Required:
A. If Lee Company has excess machine capacity and can add more labor as needed (i.e., neither machine capacity nor labor is a constraint), which product is the most attractive to produce?
B. If Lee Company has excess machine capacity but a limited amount of labor time available, which product or products should be manufactured in the excess capacity?